Industry veteran Dennis Dollar told credit union leaders that a new requirement could reshape how regulators review executive pay and governance.

A new succession planning rule from the National Credit Union Administration is poised to become a focal point of regulatory exams, potentially giving federal overseers a new window into how credit unions compensate and retain their top executives.

That was the message delivered this week by Dennis Dollar, principal partner of Dollar Associates and a former chairman of the NCUA board, during a session at America’s Credit Unions’ Governmental Affairs Conference in Washington.

Speaking to credit union executives and board members gathered at the annual policy meeting, Dollar said the rule, which took effect Jan. 1, will soon appear in a practical way during the industry’s routine examinations.

“One of the things that they will be asking you for is your succession plan,” Dollar said.

The requirement stems from a rule approved late last year by the three-member NCUA board. It passed on a 2-to-1 vote, with then-chairman Todd Harper and board member Tanya Otsuka supporting the measure and Kyle Hauptman opposing it. Hauptman, now serving as the agency’s sole board member after the dismissal of the other two members, allowed the rule to take effect at the start of this year.

For many credit unions, the immediate impact may seem procedural: examiners asking to see a written plan describing how leadership transitions would be handled. But Dollar suggested the broader significance lies in how regulators may choose to interpret and apply the requirement over time.

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“The great unanswered question, I think, is whether or not NCUA is going to treat this as a checklist item, or really as an item that they’re going to go in depth in every exam,” he said.

If treated as a simple compliance step, the process could be straightforward. Examiners might ask whether a succession plan exists, review it briefly and move on. But Dollar said the rule could also become a gateway for deeper inquiries into how credit unions determine executive compensation, bonuses and benefits.

Under that approach, regulators could examine the rationale behind pay decisions or executive benefit programs, asking institutions to demonstrate that they followed a structured process.

“Say, I just saw that you put in a new bonus plan for your CEO, and he’s put in a new one for his executive team,” Dollar said as an example of the kind of questions examiners might raise. “I’d like to see the foundation of how you came up with that number.”

Such scrutiny could also extend to executive benefit arrangements like split-dollar insurance plans or deferred compensation structures. Regulators, he said, may want evidence that credit unions conducted competitive bidding rather than relying on a single vendor.

“We have no problem with that,” Dollar said, describing the potential regulatory stance toward such programs. “But we want to know that you went out and you got more than just the guy down the street who’s always been having your insurance to handle it for you.”

The rule’s long-term implications, he warned, could become clearer only with time.

“My concern anytime about a new regulation is not necessarily where it is today, but where it may be three years from now, five years from now, ten years from now,” Dollar said.

He summarized that view with a phrase he has used frequently during his career in financial regulation: “Regulation always creeps. It often leaps, but it never retreats.”

Dollar, who served on the NCUA board more than two decades ago, said regulators have long searched for ways to monitor executive compensation practices at credit unions. Historically, he said, the agency’s authority was primarily tied to safety and soundness concerns — intervening when an institution showed signs of financial distress.

Without that trigger, he argued, regulators traditionally had less justification to scrutinize pay decisions.

“I was always a free market type guy,” Dollar said. “Well, that’s really not our business. Our business is the credit union’s safety and soundness.”

To illustrate the point, he compared financial oversight to airline regulation.

“It is kind of like the FAA,” he said. “They shouldn’t be really judging how much American Airlines is paying the pilot. But can he fly? And can he get you safely there?”

Even so, Dollar urged credit union leaders not to view the rule as an immediate disruption. Instead, he advised institutions to focus on preparation and documentation.

For organizations without a formal succession plan, he said, adopting one should be a priority. Those that already have plans may want to revisit them with their boards and formally reaffirm them under the new regulatory framework.

“If you have one already, I think it’d be a good time to have it go back before your board, and let your board approve it again,” he said.

Credit unions should also ensure that performance criteria used to award bonuses are clearly defined rather than loosely described. And when establishing executive benefit packages, institutions should document competitive bids from multiple vendors through a formal request-for-proposal process.

Those steps, Dollar said, could help demonstrate due diligence if examiners begin examining the rule more closely.

Ultimately, he told the audience, succession planning itself is a legitimate governance issue — particularly as credit unions face mounting challenges in recruiting and retaining experienced leaders.

“It’s an important issue,” Dollar said. “I think it’s a crucial issue. I think it’s one that we need to be mindful of.”

“It is kind of like the FAA. They shouldn’t be really judging how much American Airlines is paying the pilot. But can he fly? And can he get you safely there?”

– Dennis Dollar
Former Board Chair
NCUA